The Bench of Justice Rajesh Sekhri while deciding the much contested case between the J&K State Health Agency (hereinafter referred to ‘SHA’) and the IFFCO TOKIO General Insurance Company Ltd. under Section 9 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘Act of 1996’) delved into the contours of the Specific Relief Act vis-a-vis the concept of determinability of a contract as well as the import of Section 9 of the Act of 1996.
Brief Facts:
The Government of J&K started the Ayushman Bharat-Pradhan Mantri Jan Arogya Yojana-SEHAT scheme to provide a universal health coverage to all its residents by way of an insurance policy through a network of EmpaneledHealth Care Providers (EHCPs), for which the Government through SHA-the Petitioner before the Court, issued tenders. The respondent-IFFCO emerged as the successful bidder and on 10/03/2022 a contract came to be executed between the parties for a maximum period of three years. Besides, a separate tri-partite agreement came to be executed between the parties and the EHCPs.
The case of the Petitioner was that the contract is to subsist till 14th of March, 2025, however, the Respondent has denied to renew the contract after the expiry of the policy period ending 14.03.2024. Thereafter, there were a series of communications between the parties, however, the Insurer-IFFCO stuck to its stand, and finally vide communication dated 28.10.2023 conveyed the petitioner that it intended to invoke clause 9.1(c) of the contract, and not extend its consent for renewal of the contract. The Petitioner as such was constrained to invoke the Arbitration clause 41.3 and serve a notice upon respondent to submit the dispute to Arbitration. In the meanwhile, seeking protection of the lis, the Petitioner approached the Court under Section 9 of the Act of 1996 seeking a series of interim measures.
The Respondent-IFFCO to the contrary, primarily objected to the maintainability of the Petition on the ground that the contract between the parties being determinable in its nature in view of clause 9.1(c) of the contract, the same cannot be enforced under Section 14 (d) of the Specific Relief Act, 1963, therefore, petitioner is not entitled to the interim measures prayed for in view of express bar contained in Section 41(e) of the Act of 1963.
Analysis by the Court:
The Court, for the purpose of determination of the dispute, framed two questions for its consideration:
i. Application of Specific Relief Act; and
ii. Import of Section 9 of the Arbitration Act.
While dealing with the first issue, the Court, relying on the Apex Court in “Narendra Hirawat and Co. v. Sholay Media Entertainment Pvt. Ltd. and another (2022 SCC Online 1678)” as well as various High Courts, held that it is no more res integra that ‘a contract which is in its nature determinable’ indicates a contract which is determinable at the option of a party or without reference to any breach committed by the opposite party, and that, the necessary corollary of the aforesaid is that if a contract is determinable at the happening of an event or exigency, it cannot be termed as a determinable contract.
Applying the said principle to the present case, the Court observed that the Clause 27 of the Contract provides three conditions on which the Insurer can terminate the contract, (i) upon occurrence of non-payment of instalment of premium within the stipulated period despite receipt of 15 days cure notice; (ii) SHA or its employees or its representatives are found engaged in corrupt practices prohibited under the National or State Anti-Corruption laws; or (iii) the SHA failed to perform its obligations with the insurer, as per the contract. Therefore, it is manifestly clear that contract in the present case is not in its nature determinable but hinges upon the happening of exigencies adumbrated in the contract.
Thus, the Court held that since contract between the parties is not determinable in its nature, Sections 14 and 41 of the Specific Relief Act are not attracted in the present case.
Moreover, the contention of the Respondent that they had invoked Clause 9.1(c) of the Contract and not 27 (which deals with termination of contract) and both occupy different fields, was rejected by the Court noting, “The argument of Mr. Qadri learned Senior counsel for the respondent, deserves outright rejection for the reason that though insurer vide its letter dated 01.11.2023 invoked clause 9.1(c) of the contract to convey that it shall not accord its consent for the period beyond 14.03.2024, however, it is evident from the contents of the aforesaid letter that the insurer, in fact, intends to terminate the contract. Letter of the respondent dated 01.11.2023 is nothing but disguised as a termination notice.”
Further, the bone of contention between the parties being Clause 9.1 of the Contract, the Court upon detailed analysis of the same came to theconclusion that “A conjoint reading of sub clauses (a) and (c) of clause 9.1 would clearly suggest that contract in question is for a maximum period of three years and in case, the contracting parties intend to renew the impugned contract, after the expiry of maximum period of three years, it can be renewed, provided it is mutually agreed between both the parties. Therefore, sub clause (c) of clause 9.1 comes into operation only on the expiry of maximum period of three years of the contract and not during the subsistence of the present contract which is clearly and mandatorily to continue for at least three years and during the subsistence of the contract period of three years, none of the parties can wriggle out of the contract, but by invocation of relevant provisions of the contract which empowered them to terminate the contract. It is for this reason that clauses 9 and 27 of the contract operate in different fields.”
With respect to the second issue, the Court while relied upon “Essar House Private Limited v. Arcellor Mittal Nippon Steel India Limited [2022 (4) KLJ 454]” wherein it was held that while it is true that ordinarily, the power under Section 9 of the Arbitration Act should not be exercised ignoring the basic principles of CPC, technicalities of CPC cannot come in the way of the Court from securing the ends of justice, and that Courts in deciding application under Section 9 of the Arbitration Act are required to keep in mind the principles of a good prima facie case, balance of convenience in favour of the interim relief prayed for and whether the applicant has approached the Court with reasonable expedition or not.
Applying the said principles to present case, the Court observed, “As already discussed, prima facie the contract between the parties is for a period of three years from the date of its execution, which in its nature is not determinable, within the meaning of Section 14(d) of the Specific Relief Act and there is an arbitration clause in the contract, therefore, petitioner has made out a strong prima facie case in its favour.”
Further, on the principle of balance of convenience, the Court while relying upon “United Insurance Company Limited v. Manubhai DharmasinhbhaiGajera and others [(2008) 10 SCC 404]” observed that all the insurance companies, be in a public or private sector, are governed by the Insurance Act and the Regulations framed thereunder and the insurance contracts are to be construed, keeping in mind the larger public policy and public interest, and quoted the Apex Court saying, “when the terms and conditions of a contract of insurance are fixed, the protective umbrella over the interest of the policy holders to become fully open.” Therefore, it held, “Since the nature of the contract between the parties is insurance service, therefore, balance of convenience also leans in favour of the petitioner and against the insurer.”
Ultimately, the Court while holding that the damages, which may be suffered by the State Health Agency, in general, and the beneficiaries of the Scheme, in particular, on account of alleged breach of contract by the insurer, may not be compensated at a future point of time in terms of money or otherwise, allowed the Petition and directed the Respondent to temporarily continue with the existing arrangement as per terms and conditions of the contract agreement pending resolution of dispute by the Arbitrator.
